The Generation-skipping Transfer Tax

During 2010, Internal Revenue Code Section 26641 and Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (the 2001 Act) caused considerable confusion as to how the generation-skipping transfer (GST) tax would be applied in 2010 and beyond. The uncertainties for 2010 were finally resolved by the enactment on Dec. 17, 2010 of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the 2010 Act). Unfortunately, the 2010 Act simply postponed many of the uncertainties until 2013.

We will first look at GST tax planning opportunities that were available in 2010 and then examine the ways in which IRC Chapter 13 (called “Tax on Generation-Skipping Transfers”) works in 2011 and 2012 (and could work after 2012 if Congress, by inaction, permits the sunset provisions to apply). We will then discuss the need to review and possibly revise existing estate planning documents that define bequests and distributions with reference to terms defined in Chapter 13. Finally, we will consider the advisability of current action to take advantage of what may be a temporary low GST tax rate and a temporary high GST tax exemption.